RITM Q1 Deep Dive: Asset Management Inflows and Mortgage Servicing Offset Revenue Decline

Yahoo

4 hours ago

Real estate asset manager Rithm Capital (NYSE:RITM) missed Wall Street's revenue expectations in Q1 CY2025, with sales falling 31.9% year on year to $565.8 million. Its non-GAAP profit of $0.52 per share was 11.3% above analysts' consensus estimates.
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Revenue: $565.8 million vs analyst estimates of $871.8 million (31.9% year-on-year decline, 35.1% miss)
Adjusted EPS: $0.52 vs analyst estimates of $0.47 (11.3% beat)
Market Capitalization: $5.95 billion
Rithm Capital's first quarter results showed a sizable year-over-year revenue decline, missing Wall Street's top-line expectations. Management pointed to ongoing market volatility as a factor influencing performance, but highlighted continued strength across all business lines. CEO Michael Nierenberg emphasized the company's ability to manufacture, originate, and service assets, noting that the mortgage servicing platform remained a core differentiator. The quarter also saw solid progress in asset management, as Sculptor's Real Estate Fund V achieved a record level of commitments. Nierenberg acknowledged the 'market volatility plays well into the strengths and disciplines of our organization,' attributing resilience to the experience of Rithm's investment teams.
Looking forward, Rithm Capital's strategy hinges on expanding its asset management platform, growing off-balance-sheet capital, and deepening partnerships with institutional investors. Management expects continued demand for asset-backed finance (ABF) products and sees opportunities in new verticals such as energy and infrastructure. Nierenberg stated, 'Our value prop is the following: Results first, our investment professionals and teams are best-in-class across all of our investment businesses.' The company also indicated that it is actively evaluating structural changes, including a potential public listing of its Newrez mortgage business or other capital actions, with the goal to 'unlock shareholder value' by the end of 2025.
Management attributed the quarter's performance to a combination of stable servicing income, active fundraising in asset management, and disciplined loan origination amid competitive pressures.
Asset management inflows: The Sculptor business delivered $1.4 billion in gross inflows, with its Real Estate Fund V reaching $3.2 billion in commitments, marking the largest such fund in its history. Management noted that expanding fundraising momentum is crucial for future growth.
Mortgage servicing platform scale: Newrez remained a top U.S. mortgage servicer, managing a portfolio of $845 billion, including both owned and third-party servicing. The company added four new third-party clients and maintained a 98% client retention rate since 2015.
Disciplined loan origination: Amidst a competitive environment and margin compression, Rithm prioritized profitability over market share growth in its mortgage origination activities. Funded volume increased 9% year-over-year, but management avoided 'chasing market share,' focusing instead on return on equity.
Expansion of product offerings: Rithm continued to roll out asset-backed finance (ABF) funds and invested $1.5 billion in non-qualified mortgage (non-QM) loans, residential transitional loans, and other asset-backed securities. The company also highlighted the upcoming launch of mortgage servicing rights (MSR) funds to meet growing investor demand for long-dated, cash-flow-oriented products.
Strategic M&A and structural options: Management discussed an active mergers and acquisitions pipeline, particularly in credit and asset management, and is considering structural changes such as a public listing or externalization of certain business units to address what it perceives as a persistent undervaluation in public markets.
Management sees growth in asset management, new fund launches, and capital structure optimization as key themes for the remainder of the year.
Fundraising and partnership expansion: Rithm aims to grow its asset management platform by increasing fundraising efforts in real estate, credit, and ABF funds, with a focus on building long-term partnerships with institutional investors. Management believes deeper relationships will support more stable capital inflows across market cycles.
Potential structural changes: The company is evaluating options such as a public listing or externalization of Newrez, as well as shifting to a C-Corp model. These moves could help close the gap between Rithm's book value and its current market valuation, and management hopes to announce a significant capital action by the end of 2025.
Market-driven asset acquisition: Rithm expects continuing market volatility to create opportunities for attractive asset purchases, particularly in non-QM mortgages, residential transitional loans, and energy/infrastructure investments. Management's approach centers on disciplined risk management and capital allocation to maximize long-term returns.
In the coming quarters, the StockStory team will monitor (1) the pace and scale of new fundraising in asset management and ABF products, (2) progress toward potential structural changes such as a public listing or business unit externalization, and (3) the impact of market volatility on loan origination, asset purchases, and servicing growth. Execution in these areas will be critical for Rithm's long-term trajectory.
Rithm Capital currently trades at $11.22, down from $11.67 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it's free).
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